The number of financial products available to older homeowners is growing. Access to home loans, credit lines, and reverse mortgages appears to be improving. But which is the best option for you? Is it a reverse mortgage or a home equity line of credit?

Rising Expenses & Uncertainty

Many older homeowners are on fixed incomes. The challenge many face is that expenses such as healthcare costs are not fixed. Healthcare costs certainly are not fixed.

At the same time more boomers and seniors are finding their kids aren’t financially supporting themselves. Fortune and The Pew Research Center reveal that even though unemployment for young adults has dropped to around 8% in mid-2015, even fewer are now living independently than in 2010 (just 67%). Yet, financial expert Dave Ramsey warns that “the biggest expense facing baby boomers today is not their children’s’ college bills, but parent’s elder care.”

Many retirees are finding they are far less flush than expected too. The stock market hasn’t been kind, and is still estimated to be around 60% overvalued. At the same time the Social Security Administration continues to warn that there isn’t going to be enough money to pay out what is due.

Thankfully trillions are being regained in home equity. Yet, many Americans are finding they are house rich, and cash poor again. Liquidity and cash is key to surviving and enjoying the next few years.

So what are the best ways to tap into underutilized home equity?

Conventional Mortgages, Second Mortgages & Credit Lines

The Mortgage Bankers Association and Mortgage Credit Availability Index shows that access to home mortgage credit has been rising since February 2012. Inman News credits this largely to the expansion of mortgage programs.

Conventional mortgages, second mortgages, and home equity lines of credit (HELOCs) are all options. Yet, the traditional versions of these loan programs come with a number of challenges and disadvantages for older homeowners.

Most notably this includes:

Difficulty in qualifying for home mortgage loans

The need to consistently generate income to pay mortgage payments

High interest rates on 2nd mortgages

Potential for lenders to cap or close credit lines during housing downturns

Leaving large debts, and monthly financial obligations for heirs

How Do HECM Reverse Mortgages Work?

A HECM is the FHA reverse mortgage program. This is a federally guaranteed and sponsored Home Equity Conversion Mortgage. It allows homeowners aged 62 and older to convert illiquid home equity to liquid, usable cash and credit.

The real beauty of this financial tool is that is pays the homeowner, versus the reverse.

The payouts on reverse mortgages are flexible and can be customized to your personal needs.

Your funds can be taken as a lump sum, monthly payments over a specific amount of time, monthly payments over your lifetime, drawn from a credit line or a combination of these options

The most flexible option is the credit line.

Highlights of a Reverse Mortgage Credit Line include:

A built in growth feature which consistently adds access to more funds over time.

A reverse mortgage credit line grows at a compounding rate (interest rate +1.25%)

Any payments made to your principle balance will also cause your line of credit to rise by the same amount. The increase of your credit line will grow at the compounding rate, giving you more money for use in the future.

A reverse mortgage credit line is ‘open credit’, you can borrow from it, or put money back into it without penalty.

Once established, your credit line works independently from your home value and your loan balance.

Cannot be taken be taken away during market downturns (as long as you meet your contractual obligations such as paying your property taxes and homeowner’s insurance.)

Can be set up in early retirement years and be reserved for future increased liquidity, while maintaining just a minimum of a $100 balance.

Can be used to avoid taking out money from investment accounts during market downturns or used in lieu of taking Social Security income until your benefits are maximized.

Your reverse mortgage credit line cash can be used for any purpose from paying off bills, to golf and boating, to helping kids and parents, gifts for the grand kids, investing, and covering medical bills. Or just keep it as a reserve fund. It’s your money – you choose.

Find Out More…

Having more liquidity is a pressing issue for millions of Americans today. Traditional mortgages and HELOCs can sometimes be more of a nuisance and threat than benefit for aging homeowners. In contrast; a reverse mortgage credit line can help property owners stay ahead of their financial needs without increasing their burden. It’s your money. Make sure you are making the most of it!

I am designated as a Certified Reverse Mortgage Professional by the National Reverse Mortgage Lender's Association. I work exclusively with reverse mortgage loans in 35 states. I have a passion for helping my clients. I think everyone can and should live their most comfortable life. I am the founder of the National Aging in Place Council- Orange County, California with emeritus status. I've practiced yoga all of my adult life and have a strong interest in health and well being.

This information is not from HUD or FHA and was not approved by HUD or any government agency.

*The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately.

A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend tha tyou consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision.